Private sector credit and house prices growth decelerated, while private sector indebtedness remained elevated. After years of double digit increases, nominal credit growth to the private sector sharply declined in 2017 and stabilized at around 6.8 percent in 2018.6 With liquidity easing, the deceleration was mostly driven by weak demand from a highly-leveraged private sector and the implementation of some macroprudential measures (…). Weak credit and economic conditions contributed reducing the growth rate in residential house prices to 1.7 percent (9¾ percent average over the past five years). The economic slowdown began affecting the banking sector’s asset quality. Over the last two years, NPLs more than doubled, although from very low levels. More recently, banks have started tightening lending conditions. With government’s financing needs still high, banks’ direct exposures to the public sector continued rising and reached about 10 percent of banks’ total assets (7 percent in 2016).”

Private sector credit and house prices growth decelerated, while private sector indebtedness remained elevated. After years of double digit increases, nominal credit growth to the private sector sharply declined in 2017 and stabilized at around 6.8 percent in 2018.6 With liquidity easing, the deceleration was mostly driven by weak demand from a highly-leveraged private sector and the implementation of some macroprudential measures (…). Weak credit and economic conditions contributed reducing the growth rate in residential house prices to 1.7 percent (9¾ percent average over the past five years).

Canadian cities have fared better than their US counterparts, with three in the top 10 and a fourth, Montreal (20th), ranked above any city south of the border. Meanwhile, the Venezuelan capital, Caracas, ranks in the bottom 10 as the government’s fight for legitimacy has impeded its ability to provide basic services for its citizens.”

Canadian cities have fared better than their US counterparts, with three in the top 10 and a fourth, Montreal (20th), ranked above any city south of the border. Meanwhile, the Venezuelan capital, Caracas, ranks in the bottom 10 as the government’s fight for legitimacy has impeded its ability to provide basic services for its citizens.”

“Mortgage lending is growing strongly, and real estate prices have declined in recent years. Risks at this stage are limited, but policymakers need to keep a close eye on financial and fiscal risks from the housing market.

Real estate prices have fallen by around 20 percent since 2014. Housing rents have also been falling since early 2017. New supply is being driven by government initiatives to build affordable homes while the departure of expatriates may have slowed housing demand.

The government has initiated programs to build affordable housing and raise home ownership. It is providing access to land and financing to developers and encouraging new building technologies to increase the supply of houses. The white land tax announced in 2016 aims to incentivize land development. The approval of real estate investment traded funds (REITs) in 2016 and other reforms are expected to ease financial constraints faced by developers. In February 2018, a SAR 120 billion mortgage market plan was introduced to provide subsidized loans and support for developers. In addition, the developmental housing program partners with NGOs to build affordable houses for low-income households.

Housing demand is being spurred by credit policies and demographic trends. Increasing urbanization and declining household size are increasing housing demand by Saudis, while the departure of expatriates is slowing demand in the rental segment of the market. A new mortgage law was introduced in 2012 that enabled banks and non-bank institutions to lend for residential real estate. A facilitated mortgage program was introduced in 2016 to help Saudi families obtain mortgage loans. The maximum loan-to-value (LTV) ratio for first-time buyers was increased from 85 to 90 percent in January 2018 and risk weights on mortgage loans have been reduced. The PIF has set-up a mortgage refinance company.

Policymakers should remain vigilant about potential fiscal and financial risks as the real estate market develops. Large house price movements may trigger financial and macro instability as highlighted in the April 2019 Global Financial Stability Report (GFSR). Banks’ exposure to the real estate sector is limited—mortgage loans were 17 percent of total bank credit to private sector at end-2018. In addition, mortgage payments are often directly debited from salary, limiting the likelihood of default. Further, many new mortgage loans are guaranteed by the government. Going forward, however, prudential policies should continue to pay close attention to the real estate market and the fiscal impact of housing programs including through PPPs will need to be carefully assessed.”

“Mortgage lending is growing strongly, and real estate prices have declined in recent years. Risks at this stage are limited, but policymakers need to keep a close eye on financial and fiscal risks from the housing market.

Real estate prices have fallen by around 20 percent since 2014. Housing rents have also been falling since early 2017. New supply is being driven by government initiatives to build affordable homes while the departure of expatriates may have slowed housing demand.

“These results suggest that ‘debt shift’ may be one of the factors explaining recent
trends in income inequality. Credit to real estate asset markets results in rising capital
gains and growth of incomes connected to the real estate sector. Since these incomes
are concentrated among rich households, this widens income disparities. In support,
we find that mortgage credit increases the income share of households in the top 10%
of the income distribution.”

“These results suggest that ‘debt shift’ may be one of the factors explaining recent
trends in income inequality. Credit to real estate asset markets results in rising capital
gains and growth of incomes connected to the real estate sector. Since these incomes
are concentrated among rich households, this widens income disparities. In support,
we find that mortgage credit increases the income share of households in the top 10%
of the income distribution.”